With an election due by January 2025 at the latest (and likely sooner than that), this Budget had thankfully little on pensions, focusing instead on investment in the UK and some tax cuts.
In the headline announcement, the government shaved a further two percentage points off National Insurance (NI) rates. This follows on from a similar cut in January, announced in the Autumn Statement.
That means the main rate of employee NI, which was 12%, fell to 10% in January and from April will drop to 8%. The self-employed will benefit, too, with the main rate of Class 4 NI reducing from 9% to 6%, as well as the abolition of Class 2 NICs.
These changes may affect salary sacrifice schemes in place for pensions or other benefits such as company cars. While there will still be a saving for employees, it won’t be as significant as a year ago.
The consultation will run until June, which would suggest April 2025 is the aim for launch
The High Income Child Benefit charge (HICBC), which has faced criticism for its unfairness, will see some immediate changes. Currently, individuals effectively start to lose Child Benefit at a rate of 1% for every £100 earned above £50,000, with the tax charge equalling Child Benefit for anyone earning above £60,000.
From 6 April, the starting threshold will increase to £60,000 and the rate at which HICBC is charged is halved to 1% for every £200 earned above this level. That means only those earning £80,000 or more will see Child Benefit withdrawn in full.
That doesn’t remove the inherent unfairness that one household with a single earner who earns just above the threshold loses Child Benefit, whereas a household with two earners each just below the threshold keep it, despite their household income being significantly higher.
To try to solve that issue, the government plans to administer HICBC on a household basis from April 2026 and will consult on the detail. Considering household income rather than on an individual basis would be a significant shift in tax policy.
Some of these changes are due to be introduced in April 2025 or later. We do, of course, have the small matter of an election between now and then
In the meantime, don’t forget payment of a pension contribution reduces earnings for this purpose. So, as well as normal pension tax relief, regaining some or all the Child Benefit can give effective tax relief of more than 60%.
A number of measures aim to increase investment in the UK. British Savings Bonds will launch in April through National Savings & Investments. This product will offer a guaranteed interest rate, fixed for three years, and provide opportunities to save while investing in the UK.
The government will consult on a new British Isa designed to invest in UK-focused assets. This will offer a £5,000 allowance in addition to the existing Isa allowance of £20,000. The consultation will run until June, which would suggest April 2025 is the aim for launch.
Yet another potential type of Isa means we’re in danger of them becoming too difficult and complex for people to understand. Multiple different variants put barriers in the way of customers. I’m also not sure this will drive the outcomes the government hopes to achieve.
This Budget had thankfully little on pensions, focusing instead on investment in the UK and some tax cuts
If an individual invests in UK shares via a British Isa or a British Savings Bond, many may adjust their wider investment portfolio to take that into account, for example by selling some UK equity investments held elsewhere.
Continuing this theme, the government intends to require defined contribution pension schemes to disclose the breakdown of their asset allocations, including UK equities. The Financial Conduct Authority will consult in the spring around how this will impact retail pension schemes.
Some of these changes are due to be introduced in April 2025 or later. We do, of course, have the small matter of an election between now and then. That begs the question of whether some of these measures will ever see the light of day.
Andrew Tully is technical services director at Nucleus
The whole idea is a dogs breakfast.
Invest in the BRISA and then switch to another EG. US or Europe?
Will the largest UK companies be included? If so nothing wrong with BaE, Shell, Rio Tinto, ARM etc. But my bet is that only the smaller firms will be eligible. These are the ones with high debt & a poor. profit record. If this is to be the case, then we already have VCTs and EIS, so what will a BRISA bring to the party. And of course not forgetting the lamentable showing of the British market when compared to peers over this period. No wonder investors have shunned the UK.
If the Chancellor is appealing to patriotism he would do well to remember Samuel Johnson’s quote – “Patriotism is the last refuge of a scoundrel”
A simpler and more positive way to look at this might be an increase to the ISA input allowance to £25k, of which not less than 20% (or any input above £20k) must be invested in British stocks, which (to me) seems pretty reasonable.
Elsewhere it’s been suggested that hardly any investors use their full ISA input allowance, though that’s never been my experience, so I wonder about the source and veracity of such a claim.
“…not less than 20% (or any input above £20k) must be invested in British stocks, which (to me) seems pretty reasonable.”
Well Julian I can only conclude that you aren’t a serious investor. Look at the stats. 5 years to date:
FTSE 100 +7.5%
All Share +7.2%
All World Ex UK +62.39%
Euro Top 100 +40.05%
DAX +56.178%
CAC +53.19%
(European stocks – Thank you Brexit!)
DOW +52.98%
So , if you want to be a patriot be prepared to have poor returns, unless you are very selective and buy individual stocks. I can’t see the likes of BaE, Shell, Melrose etc being permitted, just the smaller newer stocks with high debt and no profit record.